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Britain's Missing Millionaires

Income tax rates rise but revenues fall

A funny thing often happens on the way to soaking the rich: They don't stick around for the bath. Take Britain, where Her Majesty's Revenue and Customs service reports that the number of taxpayers declaring £1 million a year in income fell by more than 60% in fiscal 2010-2011 from the year before.

That was the year that millionaires became liable for the 50% income-tax rate that Gordon Brown's government introduced in its final days in 2010, up from the previous 40% rate. Lo, the total number of millionaire tax filers plunged to 6,000 in 2010-2011, from 16,000 in 2009-2010.

The new tax was meant to raise about £2.5 billion more revenue. So much for that. In 2009-2010 British millionaires contributed about £13.4 billion to the public coffers, or just under 9% of the total tax liability of all taxpayers that year. At the 50% rate, the shrunken pool yielded £6.5 billion, or about 4.4%.

The British press is abuzz with the notion that 10,000 millionaires left the country in the interim, and no doubt some did make for their chalets in Gstaad. Others may have brought forward more income in 2009-2010, knowing the higher rate was on its way. No doubt, too, the overall lousy economy took its toll.

Prime Minister David Cameron decided earlier this year to lower the 50% rate to 45%, meaning we may see at least some of the millionaires return to the U.K. But the figures are another reminder that incentives matter.

Politicians would love to lay the whole burden of their policies on a tiny minority of the rich, but you can't finance the welfare state on the shoulders of the 1%. That's something for the U.S. to remember as President Obama pretends he can fill a $1 trillion budget hole with tax hikes on "millionaires and billionaires."

A version of this article appeared December 3, 2012, on page A16 in the U.S. edition of The Wall Street Journal, with the headline: Britain's Missing Millionaires.

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